Unemployment in Ukraine

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Nayan S. Halankar

Economies In Transition

Nek Buzdar, Ph.D

Unemployment in Ukraine

Ukraine is a country of 47,732,079 million people with more than 21.29 million in the labor force. It is situated between Russia and Europe. Historically, eastern Ukraine had strong links with Russia and became part of the Russian Empire under Catherine the Great, while western Ukraine was part of the Polish-Lithuanian Commonwealth and latterly of the Habsburg Empire.

After Russia, the Ukrainian republic was far and away the most important economic component of the former Soviet Union, producing about four times the output of the next-ranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Shortly after independence in December 1991, the Ukrainian Government liberalized most prices and erected a legal framework for privatization, but widespread resistance to reform within the government and the legislature soon stalled reform efforts and led to some backtracking. Output by 1999 had fallen to less than 40% of the 1991 level. Loose monetary policies pushed inflation to hyperinflationary levels in late 1993. Ukraine's dependence on Russia for energy supplies and the lack of significant structural reform have made the Ukrainian economy vulnerable to external shocks. The issue of unemployment is a widespread issue

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throughout the world. It does not spare first world, second world or third world countries. Ukraine is a prime example of what I think is a second world country which

after the independent, experienced economic boom with it’s economy. But now the economy is slowly but surely is coming back down to earth. The unemployment percentage of unemployed workers in Ukraine is high even though the statistical data does not show it.

There are many ways of hiding labor surpluses or unemployment in a country. One way is to stop bankrupt enterprises from laying off workers or claiming bankruptcy.

In case of Ukraine, official unemployment rate run around three percent, but this does not reflect the actual situation. Many workers have been placed on “administrative leave” or are officially listed as “employed” but are paid part-time wages or not paid at all. The International Labor Organization (ILO) predicts that the unemployment percentage is close to 9.8 percent, almost three times the stated. This is the source of the “disguised” or “hidden”, unemployment that has become so pervasive in transitional economies. The second way of hiding unemployment is to devise non-market ways of adding to the demand for labor. The traditional way of doing this is thorough public works schemes. In principle such schemes create employment directly during the construction process, indirectly through linkages to supplying industries, through the multiplier when workers spend earnings. Public works help to raise productivity and income in the area. It also raises the incentive to invest in the area, where the public work has been created. A third way of hiding labor underutilization is to encourage surplus workers to leave the labor

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force rather than to become unemployed. Early retirement schemes have been very popular in countries with transitional economies.

Unemployed benefit system is huge factor in rate of unemployment. In general, the more generous and relaxed the approach of the system, the greater the incentive to register as unemployed and stay on the register. In transitional economies low unemployment rate are largely explainable by the absence of a benefit system that could support a full-time job search. The oblivious exception is Ukraine, which is not the most successful in the struggle against unemployment. Hardly anyone bothers to register as unemployed, partly because of lack of information, but mainly because the average level of benefit is equivalent to less than 20 percent of the average wage. Many of the CIS economies, like Russian and Ukraine, have low unemployment benefits and negligible minimum wage. Conversely, transition economies with no minimum wages and low unemployment benefits should and will experience massive cuts.

Data on average shows unemployment rate of only four percent in CIS countries like Russian and Ukraine. Even though the cumulative out put fall in GDP of CIS countries was approximately fifty percent. On the contrary, CEE countries like Poland, and Hungary when the